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Denver sausage store owner Kathy Laurenti didn’t realize she was under-insured until it was too late. When a gun shop next door caught fire, water and smoke damage shut her business down, costing her an estimated $100,000 to reopen. Unfortunately, her business insurance only covered $10,000 for lost income.
Stories like this are all too common. Many small companies often don’t buy insurance at all, or if they do buy it, they typically carry a standard policy that leaves them unguarded against unforeseen risks. Part of the problem is that business owners often rely on brokers to sell them a one-size-fits-all standard policy instead of understanding the needs of their specific business, according to Robert Borghese, University of Pennsylvania law and entrepreneurship professor.
If you’re starting up a company, there are some types of business insurance you absolutely must have, as well as other types of optional insurance you should seriously consider.
Required business insurance
If your business has employees, there are some types of insurance you may be required to carry by law, says the U.S. Small Business Administration. Under certain circumstances that vary by state, businesses with employees must pay unemployment insurance taxes into a state fund. This covers unemployment insurance compensation claims in case you fire an employee for reasons other than misconduct, if they quit for a reason caused by you, or if they are laid off.
You are also required to carry workers’ compensation insurance in many states. This protects you in the event that an employee becomes unable to work through a work-related injury or illness. Even if you’re not required to carry this type of insurance, it may still be advisable to protect yourself from expensive compensation claims, such as a mesothelioma lawsuit; you can find out more about asbestos exposure in the workplace by contacting a mesothelioma attorney. Depending on where you live and your circumstances, you can sign up for workers’ compensation insurance by going through a commercial carrier, by going through a state workers’ compensation insurance program or by self-insuring. Check your state’s requirements.
In some states, you may also be required to carry disability insurance coverage to partially replace the wages of workers who become unable to work due to non-work-related injuries or illnesses. Check your state’s requirements with your state department of labor.
Recommended business insurance
There are other types of insurance that are not required but may be highly recommended depending on the specifics of your company. One of the most important is general liability insurance. This protects you and your workers against claims of injuries, accidents or negligence, insuring you against payments involving property damage, bodily injury, medical expenses, damage to reputations and legal fees. Most businesses, including home-based businesses, should carry general liability insurance.
In certain lines of business, you may want to consider other types of liability insurance. Product liability insurance protects you from claims resulting from items you sell causing consumers bodily harm. If you sell a service rather than a product, you may want to consider professional liability insurance, also known as errors and omissions (E&O) insurance, which shields you against claims of errors, malpractice or negligence. In some states and industries, this type of insurance may be required.
Another important type of insurance is commercial property insurance, which is like home insurance for your business. This insures you against losses related to events such as floods, fire and crime. Commercial property insurance policies can encompass a wide range of disasters or they can be peril-specific, so be sure to read the terms of your policy carefully. Make sure your policy insures your company vehicles.
If you work from home, you may want to consider home-based business insurance. Contrary to what most people who work from home assume, personal insurance does not necessarily cover business losses. Home-based business policies can protect you against work-related losses.